Uncertainty driving results at Home Depot and Walmart
Everyone is talking about the recent earning results from Home Depot and Walmart and how the news will impact business in the coming quarters. We’ve summarized what’s happening and provided some key economic data to help put the results into greater perspective. It’s a short read – 540 words or about 2 minutes – but we think it provides a succinct overview of the current retail and economic situation.
What happened at Walmart:
Although Walmart’s same-store sales grew 8.3% in the most recent quarter, the gains primarily came from the company’s lower-margin grocery business as cautious consumers traded down from higher-priced supermarkets and selected store brands over national brands.
- In the face of persistent inflations, consumers are now choiceful, discerning, and thoughtful, according to Walmart CEO, Doug McMillion.
What happened at Home Depot:
Home Depot missed Wall Street’s revenue expectations for the first time since November 2019, coming in at $35.83 billion for the quarter vs. the $35.97 billion that was expected. Same-store sales declined 0.3% versus expectations of a 0.3% increase. The average size per transaction increased by an inflation-driven 5.8% from the prior year quarter but was offset by a decline in transactions of 6.0%.
How they view the rest of 2023:
Home Depot is projecting flat same-store sales results for the balance of the year and Walmart provided a weaker-than-expected outlook for 2023. Together, their outlooks signal a tough year for retailers.
The uncertain consumer:
It’s hard for consumers to completely understand where the economy is headed, and an uncertain consumer is an unwilling consumer. Consider the impact of the following economic indicators:
- Jobs: The U.S. added 517,000 non-farm jobs in January 2023, and the unemployment rate fell to 3.4% - the lowest jobless level since May 1969. But consumers hear about the approximately 160,000 tech workers that were laid off in 2022 and the approximately 100,000 more U.S. tech jobs that have been lost so far in 2023.
- Housing: The national median existing-home price was $359,000 in January, which is down from the record high of $413,800 in June 2022. This should be good for prospective home buyers. However, thanks to current mortgage rates, existing home sales declined for the 12th straight month to a seasonally adjusted 4.0 million homes, the slowest annual rate since October 2010.
- Personal finances: U.S. consumers are carrying a record high $986 billion in credit card debt, and the personal savings rate stood at 3.4% - a significant decline from the 7.5% recorded in Dec. 2021 and 13.8% in Dec. 2020. An estimated 63% of Americans are living paycheck to paycheck.
The bottom line for home improvement brands:
The retail market will continue to face caution and uncertainty, and data from our recent Consumer Pulse show the potential challenges ahead for the industry:
- 71% of current renters plan on buying a home in the future, but only 20% are likely to do so this year.
- Most (73%) of current homeowners feel their current homes need minor or major improvements, but only 41% are confident they will make them because of the current economic environment.
- Click here to see more housing-related consumer data from the Sales Factory Consumer Pulse.